Will Facebook Coin Actually Be Able To Bank The Unbanked?

On June 18th 2019, the team at Facebook finally revealed its long-awaited plans to launch its very own cryptocurrency. Branded as 'Libra', the cryptocurrency aims to increase accessibility to the global payments system, and thus, bank the unbanked. Asides from Facebook themselves, the Libra project has some significant partners involved.

Notably, this includes the likes of eBay, Spotify, Uber, PayPal, and Visa, to name a few. This in itself is likely to give Libra's launch instant main-stream awareness on a global scale. In terms of the technicals, details issued thus far indicate that the Libra coin will utilize a consensus mechanism it calls LibraBFT, which basis its framework on a previously used model known as Practical Byzantine Fault Tolerance (pBFT).

With that being said, the much anticipated press release of the Libra project has presented more questions than answers. More specifically, will the project actually be able to achieve its overarching goal of banking the unbanked?

Regulatory hurdles of the Libra coin

The main concept of Facebook’s Libra launch is to remove the barriers associated with accessing the global monetary system - especially for those based in emerging and third-world economies. To achieve this, the Libra coin will act as stablecoin, which will be fully backed by a basket of major currencies and government securities (such as Treasury Notes).

However, although the Libra project is not expected to launch until 2020, Facebook has already caught the attention of U.S. regulators. Just a day after the project announcement, the Senate Banking Committee announced that it would be holding a crucial hearing on July 16th to determine the risks of the project.

This will have a direct focus on Facebook's historical relationship with privacy breaches, amongst other potential risks. As per U.S. Sen. Sherrod Brown, “We cannot allow Facebook to run a risky new cryptocurrency out of a Swiss bank account without oversight.".

These viewpoints are echoed by Jeremy Dahan, CEO of diamond-backed stablecoin project diamDEXX. Dahan notes that “The funniest thing, or maybe the most disturbing one, is to come across quotes like David Marcus' (Facebooks' Head of Blockchain) saying that in order to earn people's trust, they will have to make strong commitments on privacy. I don't understand how, after all of Facebook's privacy scandals, he has the nerve to say that to his users. The coin was called Libra as reference to Justice and Liberty. Then how come it is run by Facebook?.”

Interestingly, the U.S. administration is not alone in its criticism of the Libra project, with ministers from Germany and France weighing in on the potential risks, as well as the Governor of the Bank of England - Mark Carney.

How will Libra deal with its AML/KYC responsibilities

A further concern facing national regulators is the little matter of anti-money laundering (AML). As the cryptocurrency industry has matured, the ability to operate anonymously is getting more and more challenging.

In fact, those that aim to stand the test of time in the cryptocurrency space must ensure that they remain fully compliant with relevant know-your-customer (KYC) laws.

This essentially requires users to identify themselves, which at the lower-level, requires a provision of government issued ID. However, the Libra project is yet make it clear how it intends to deal with its AML/KYC obligations on a global basis.

The underlying concept of Libra is profit-driven

Ultimately, the overarching objectives of the Libra project are noteworthy, as those based in emerging and third-world nations have a direct need to access the international payments system. When one takes into account the severe volatility of domestic currencies used in regions such as Africa and South America, the Libra coin will allow hard-working citizens to protect their savings through the project’s stablecoin framework.

However, it could be argued that Facebook’s proposed launch of 2020 is anything but realistic. When one considers the sheer magnitude of Libra’s global reach, Facebook are going to need to go through a significant amount of regulatory hurdles before it gets the green light from national policy makers.

On top of the project’s regulatory railblocks, there are also concerns about the centralization of Libra - something that is a far cry from truly decentralized cryptocurrencies like Bitcoin or Ethereum.

Dahan argues that Libra is a “Centralized currency run by a wealthy corporation with profit intentions. Obviously, this is far from the values characterizing the blockchain and crypto space and will most likely face rejection from the community, and perhaps even by the government itself.”

The unbanked will need to consider alternative channels

On the one hand, the long-term viability, realities and motives of the Libra project are a major blow for the unbanked. However, all is not lost, as those without access to global finance have a range of alternative options that are already in existence.

Citizens based in third-world countries that are looking to avoid the domestic threats of hyper-inflated currencies should consider the merits of Bitcoin. It’s characteristics as a finite, borderless store of value makes it an ideal safeguard. Alternatively, there are now a number of legitimate stablecoin projects that are fully backed by real-world stores of value.

For example, diamDEXX is backed 100% by physical diamonds that are frequently audited by established third parties. The options for third-world citizens are effectively endless, with stablecoins even having the potential to be backed by real estate portfolios.

Banking the unbanked - Facebook’s journey remains unclear

In summary, while the Libra project offers some much needed ideas and concepts for the estimated 2 billion people that are still unbanked, whether or not it will be able to satisfy the concerns of national regulators is a whole different story.

However, the good news is that a range of alternative options are already in the making. Whether it's stablecoins backed by diamonds, gold, silver, U.S. dollars or real estate, those residing in emerging and third-world nations finally have a means to protect their wealth.